MF Nut Co., LLC v. Continental Casualty Company
Filing
109
ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT 52 , GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT 64 [DKT. NOS. 52, 64] AND VACATING TRIAL DATE. Signed by JUDGE LESLIE E. KOBAYASHI on 1/14/2013. [Order follows hearing held 12/17/2012. Minutes of hearing: doc no. 104 . Court Order issued 12/28/2012, doc. no. 106 ] (afc)CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
MF NUT CO., LLC, fka MAC
FARMS OF HAWAII, LLC,
)
)
)
Plaintiff,
)
)
vs.
)
)
CONTINENTAL CASUALTY COMPANY, )
)
Defendant.
)
_____________________________ )
CIVIL NO. 11-00004 LEK-BMK
ORDER DENYING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT,
GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [DKT. NOS. 52,
64], AND VACATING TRIAL DATE
Before the Court are the following motions: (1)
Plaintiff MF Nut Co., LLC’s, formerly known as Mac Farms of
Hawaii, LLC (“Mac Farms”) Motion for Partial Summary Judgment as
to Duty to Defend (“Mac Farms’ Motion”), filed on May 30, 2012
[dkt. no. 52,] and (2) Defendant Continental Casualty Company’s
(“Continental”) Motion for Summary Judgment (“Continental’s
Motion”), filed on July 30, 2012.
[Dkt. no. 64.].1
Continental filed its memorandum in opposition to Mac
Farms’ Motion (“Continental’s Memorandum in Opposition”) on
September 25, 2012.
1
[Dkt. nos. 77 (redacted), 80 (sealed).]
Mac
The parties filed their consent to jurisdiction by United
States Magistrate Judge on March 17, 2011 and consented to have
the entire litigation, including trial, before United States
Magistrate Judge Kevin S.C. Chang. On October 9, 2012, Judge
Chang filed his order of recusal and this matter was subsequently
reassigned on October 22, 2012.
Farms filed its reply (“Mac Farms’ Reply”) on October 2, 2012.
[Dkt. no. 81.]
Mac Farms filed its memorandum in opposition to
Continental’s Motion on September 25, 2012 (“Mac Farms’
Memorandum in Opposition”).
[Dkt. no. 77.]
Continental filed
its redacted reply on October 2, 2012, [dkt. no. 82,] and its
sealed reply on October 3, 2012.
[Dkt. no. 85.]
Both motions came on for hearing on December 17, 2012.
Appearing on behalf of Mac Farms was Richard B. Miller, Esq., and
David R. Harada-Stone, Esq., and appearing on behalf of
Continental was David Ronald Major, Esq., and Christopher R.
Carroll, Esq.
After careful consideration of the motions,
supporting and opposing memoranda, and the arguments of counsel,
the Court HEREBY DENIES Mac Farms’ Motion and GRANTS
Continental’s Motion.
BACKGROUND
Prior to August 2008, Mac Farms “grew and harvested
macadamia nuts on its farm in South Kona on the Island of
Hawaii.”
[Complaint at ¶ 16.]
Mac Farms had a contract with
Global Horizons, Inc., a California corporation doing business as
Agri Labor LLC (“Global Horizons”) to provide seasonal laborers
to supplement Mac Farms’ workforce.
Global Horizons provided Mac
Farms with laborers from October 2004 through March 2007.
at ¶ 17.]
2
[Id.
Continental issued Mac Farms an “Epack” Insurance
Policy, No. 287240960, originally effective May 1, 2008 through
June 27, 2009 (“the Policy”).
Endorsement No. 18, effective
August 11, 2008, amended the Policy’s expiration date to
August 11, 2008.
Endorsement No. 19, also effective August 11,
2008, provided for an extended reporting period through
August 11, 2010.
The Policy is a “claims made” policy.
The
“Insuring Agreement” in the Policy provides:
The Insurer shall pay on behalf of Named Company,
any Subsidiary, any Plan or any Insured Person
Loss resulting from any Claim first made against
the Named Company Insureds during the Policy
Period or the Extended Reporting Period, if
applicable, for a Wrongful Act by such Named
Company Insured or by any natural person for whose
Wrongful Act such Named Company Insured is legally
responsible.
[Policy at CCC 00020 (emphases omitted).]
The limit for the
Employment Practices Liability (“EPL”) coverage part is
$1,000,000, with a $25,000 retention.
[Id. at CCC 00008.]
The Policy defines a “claim” as “a written demand for
monetary damages” or “a formal civil, administrative, or
regulatory proceeding or investigation or an arbitration[.]”
[Id. at CCC 00024.]
A “wrongful act” is defined as “any actual
or alleged error, misstatement, misleading statement, act,
omission, neglect or breach of duty committed or attempted by the
Insured Persons in their capacity as such or by Named Company or
any Subsidiary.”
[Id. (emphases omitted).]
3
A “wrongful
employment practice” is defined as “any Wrongful Act constituted
or relating to[,]” inter alia
violation of any federal, state or local laws
(whether common-law or statutory) concerning
employment or discrimination in employment,
including the Americans with Disabilities Act of
1992, the Civil Rights Act of 1991, the Age
Discrimination in Employment Act of 1967, Title
VII of the Civil Rights Act of 1964 and the Civil
Rights Act of 1866[.]
[Id. at CCC 00025 (emphasis omitted).]
On or about April 18, 2006, three Global Horizons
employees filed Equal Employment Opportunity Commission (“EEOC”)
charges against Global Horizons and Mac Farms.
Between April 18,
2006 and August 13, 2008, 28 more employees filed charges against
Mac Farms.
The charges alleged national origin discrimination
and retaliation for engaging in protected activity, both in
violation of Title VII of the Civil Rights Act of 1964, as
amended (“Title VII”).
In a letter dated August 6, 2008, Mac
Farms’ counsel, Barbara Petrus, Esq., of the law firm Goodsill
Anderson Quinn & Stifel, LLP (“Goodsill Anderson”), tendered the
defense of the 31 EEOC charges to Continental.
Ms. Petrus
submitted copies of the charges and responses with the tender
letter.
The charges and responses reflected that some of the
charges’ filing dates were before the effective date of the
Policy, and some were after the effective date.
In an August 28, 2008 telephone conversation,
Bryna Stiefel, a Continental claim manager, informed Ms. Petrus
4
that Continental was accepting the tender and would pay for
Goodsill Anderson to defend Mac Farms.2
Between September 4,
2008 and July 9, 2009, Mac Farms, through Goodsill Anderson,
tendered the defense of an additional 10 EEOC charges to
Continental.
Thus, the total number of charges tendered was 41
(all collectively “the EEOC Charges” brought by “the Charging
Parties”).
Goodsill Anderson continued to defend Mac Farms and
sent its invoices to Continental.
There were delays in the
payment of some invoices but, until August 3, 2010, Continental
never disputed coverage and did not indicate that it was
defending Mac Farms pursuant to a reservation of rights.
[Separate Concise Statement in Supp. of Mac Farms’ Motion, filed
5/30/12 (dkt. no. 53) (“Mac Farms’ CSOF”), Decl. of Barbara A.
Petrus (“Petrus Decl.”) at ¶¶ 8-9.]
On or about July 23, 2010, the EEOC issued a
determination as to eight of the charges that it had reason to
believe Mac Farms had engaged in illegal discrimination.
On or
about August 3, 2010, Ms. Petrus’s associate, Shannon Sagum,
Esq., told Ms. Petrus that Ms. Stiefel had informed her that
2
Mac Farms notes that Continental has claimed it sent a
reservation of rights letter to Mac Farms on or about October 23,
2008. Ms. Stiefel, however, stated that the letter was addressed
to an executive who she knew no longer worked for Mac Farms and
that she overlooked the name of the proper contact person. She
also stated that the letter was not sent via certified mail and
therefore she had no knowledge of whether anyone at Mac Farms
ever received it. [Mem. in Supp. of Mac Farms’ Motion at 12
n.2.]
5
Continental would be issuing a reservation of rights letter.
[Petrus Decl. at ¶¶ 11-12.]
On or about August 6, 2010, the EEOC
issued its determination as to the remaining charges, also
concluding that it had reason to believe that Mac Farms had
engaged in illegal discrimination as to those charging parties.
[Id. at ¶ 13.]
The two determination letters state:
The Commission has determined that there is
reasonable cause to believe that Charging Party
and similarly situated individuals were
discriminated against due to their national origin
(Thai). The Commission has also determined that
there is reasonable cause to believe that Charging
Party and similarly situated individuals were
subjected to harassment, subjected to different
terms & conditions of employment, and intimidated
because of their national origin (Thai).
. . . .
Therefore, I have concluded that the evidence is
sufficient to establish a violation of the statute
under Title VII of the Civil Rights Act of 1964,
as amended.
[Continental’s Separate and Concise Statement in Supp. of
Continental’s Motion, filed 7/30/12 (dkt. no. 66) (“Continental’s
CSOF”), Decl. of Bryna J. Stiefel (“Stiefel Declaration”), Exh. D
at CCC 00497-98 (7/23/10 determination letter), CCC 00554-55
(8/6/10 determination letter).]
On August 27, 2010, the EEOC sent Mac Farms and Global
Horizons a conciliation proposal which included, inter alia, a
$12,865,000.00 settlement.
Goodsill Anderson repeatedly tried to
discuss the proposal with Continental, but Ms. Stiefel would not
6
discuss it, other than to ask Goodsill Anderson to request an
extension of the deadline to respond to the conciliation
proposal.
Goodsill Anderson obtained an extension until
September 14, 2010.
Ms. Petrus believed that the purpose of the
extension was to allow Continental to review the proposal and
discuss it with Mac Farms and Goodsill Anderson.
During a
September 14, 2010 telephone call which had been scheduled to
discuss the proposal, Ms. Stiefel advised Ms. Petrus and Ms.
Sagum that Continental was denying coverage for the EEOC Charges
and withdrawing its defense.
defend Mac Farms.
Goodsill Anderson has continued to
[Petrus Decl. at ¶¶ 14-18.]
Continental sent Mac Farms’ general counsel a formal
letter of denial dated September 27, 2010.
[Mac Farms’ CSOF,
Decl. of David R. Harada-Stone (“Harada-Stone Decl.”), Exh. 8.]
It states that all of the EEOC Charges “arise out of the same
‘wrongful acts,’ and are, therefore ‘interrelated wrongful acts,’
and one single Claim[,]” which is deemed to have been made on the
date of the earliest claim.
[Id. at 000052.]
The first claim
was filed on April 26, 2006, which was prior to the effective
period of the Policy and therefore there is no coverage for the
single Claim.
[Id.]
On April 19, 2011, the EEOC filed a Complaint against
various defendants, including Global Horizons and Mac Farms.
[EEOC v. Global Horizons, Inc., et al., CV 11-00257 LEK-RLP
7
(“EEOC v. Global Horizons”), (dkt. no. 1).]3
The current version
of the complaint in that case is the Third Amended Complaint.
[EEOC v. Global Horizons, filed 7/2/12 (dkt. no. 263).]
The
Third Amended Complaint alleges:
40. At all relevant times, Defendant Mac
Farms has continuously been under contract with
Defendant Global for services rendered in Hawaii,
and has continuously been a joint employer with
Defendant Global where both generally controlled
the terms and conditions of the employment of
Suthat Promnonsri and other individuals.
41. Global and Mac Farms jointly controlled
the Claimants’ work, housing, transportation, and
access to food; jointly supervised the Claimants
and/or Mac Farms exercised successively higher
authority over Global and the Claimants; jointly
determined the pay rates or the methods of
payment; jointly held the right, directly or
indirectly, to hire, fire, or modify the
employment conditions of the workers; jointly
participated in the preparation of payroll and the
payment of
wages.
42. Mac Farms’ joint employer liability also
stems from Mac Farms’ ownership or control of the
land, housing, transportation, and worksite, which
placed it in a position to prevent the violations
of Title VII alleged herein, even through it
delegated hiring and some supervisory
responsibilities to Global.
43. The Claimants were economically
dependent on Mac Farms due to Mac Farms’
investment in equipment and facilities.
44. At Mac Farms, the Claimants performed
routine tasks that are a normal and integral phase
of the Mac Farms’ production making them dependent
3
On November 15, 2012, the EEOC v. Global Horizons case was
reassigned to this Court. [Dkt. no. 418.]
8
on the Mac Farms’ overall production process.
45. Mac Farms maintained on-the-job control
over Claimants through Mac Farms’ own personnel
and Global and on-site crew leaders who in turn
spoke directly to the Claimants.
[EEOC v. Global Horizons, Third Amended Complaint at ¶¶ 41-45.]
The Third Amended Complaint alleges that Mac Farms engaged in
misconduct and/or discrimination against the Claimants4 by:
providing uninhabitable housing; refusing to take them to the
store to buy food to eat; failing to act when it was aware that
Global Horizons was not paying them; failing to investigate when
it was aware that some of them were running away; imposing
quotas; restricting their movements at the farm and preventing
them from leaving the farm; verbally abusing them; imposing
exorbitant and/or unlawful recruitment fees; confiscating their
passports; giving them demeaning job assignments; threatening
them, including threats of deportation; intimidating them; and
retaliating against them for engaging in protected activity.
[Id. at ¶¶ 193-200, 240-43, 257-66.]
The Third Amended Complaint
also alleges that Mac Farms failed to investigate Global
Horizons’ credentials, in spite of the fact that Mac Farms was
4
The Third Amended Complaint states that approximately 159
Claimants worked at Mac Farms’ from 2004 to 2007 “and experienced
the above-described pattern or practice of discrimination.”
[EEOC v. Global Horizons, Third Amended Complaint at ¶ 268.] The
Third Amended Complaint notes: “Forty-one Claimants filed Charges
of Discrimination against Mac Farms not including class members.”
[Id. at ¶ 267.]
9
aware of the need to do so.
[Id. at ¶ 212.]
The Third Amended
Complaint alleges that Mac Farms discriminated against the
Charging Parties based on their race/national origin (Thai/Asian)
and that non-Thai workers, including Vietnamese, Filipino, and
Mexican workers were not subjected to the same conditions.
[Id.
at ¶¶ 221, 223.]
On January 4, 2011, Mac Farms filed the instant
insurance coverage action against Continental, based on diversity
jurisdiction.
Count I of the Complaint seeks a declaratory
judgment pursuant to 28 U.S.C. § 2201 that Mac Farms is entitled
to a defense and indemnification from Continental in the
underlying proceedings.
[Complaint at ¶¶ 37-46.]
Count II
alleges that Continental breached its insurance contract with Mac
Farms by withdrawing its defense and disclaiming any obligation
of indemnification.
[Id. at ¶¶ 47-51.]
Count III alleges that
Continental waived any defenses to coverage when it accepted Mac
Farms’ tender without a reservation of rights and that Mac Farms
detrimentally relied on Continental’s acceptance of the tender.
Mac Farms therefore contends that Continental is now estopped
from withdrawing its defense and/or from denying its indemnity
obligations.
[Id. at ¶¶ 52-58.]
bad faith claim.
Count IV alleges an insurance
[Id. at ¶¶ 59-64.]
Mac Farms seeks: a
declaratory judgment that Continental has a duty to defend and
indemnify; an order requiring Continental to immediately resume
10
Mac Farms’ defense; reimbursement of the attorneys’ fees and
costs incurred in the defense of Mac Farms after the withdrawal
(including outstanding fees and costs at the time of the
withdrawal); an order requiring Continental to indemnify Mac
Farms for any amounts paid to settle the underlying charges or to
satisfy any resulting judgment, even if the amount exceeds the
policy’s limitations; compensatory damages; punitive damages;
reasonable attorneys’ fees and costs; and any other appropriate
relief.
I.
Mac Farms’ Arguments
In the instant motion, Mac Farms first argues that the
Interrelated Wrongful Acts Exclusion of the Policy does not
preclude coverage, and that courts have ruled that language such
as the Policy’s definition of “interrelated wrongful acts” is
ambiguous.
Mac Farms emphasizes that the EEOC Charges involve 41
different employees who worked at Mac Farms during different time
periods, and that the Third Amended Complaint includes numerous
allegations that only apply to certain of the claimants, and that
there is no way to establish that all of the claims asserted by
the 159 former Mac Farms workers arose from “interrelated
wrongful acts.”
The mere fact that the 41 EEOC Charges use the
same boilerplate language and the Charging Parties are all Thai
nationals is not enough.
Thus, Mac Farms argues that evaluation
11
of the EEOC Charges requires an evaluation of the facts specific
to each employee.
Mac Farms asserts that the allegations in the
EEOC Charges and in the EEOC’s complaint in EEOC v. Global
Horizons are vague, prohibiting any finding that all of the EEOC
Charges are logically or causally connected.
Further, Mac Farms
emphasizes that many of the EEOC Charges were filed after the
effective date of the Policy.
Mac Farms therefore argues that
Continental has a continuing duty to defend.
Mac Farms also argues that, although an insurance
company may initially assume an unconditional defense while it
investigates the existence of coverage, it must promptly provide
a reservation of rights after it receives information raising the
possible absence of coverage.
Mac Farm emphasizes that
Continental provided Mac Farms with an unconditional defense for
two years, even though it knew or should have known at the time
of tender that the first of the EEOC Charges were filed prior to
the effective date of the Policy, and that Continental then
withdrew coverage without meaningful warning.
Mac Farms
emphasizes that the October 23, 2008 reservation of rights letter
(“10/23/08 Reservation of Rights Letter”) is ineffective.
At the
time the EEOC’s conciliation proposal was pending and Mac Farms
was relying on Continental’s input and assistance to address the
proposal.
Thus, Mac Farms argues that Continental’s withdrawal
was prejudicial because it deprived Mac Farms of the opportunity
12
to resolve the matter before the EEOC’s referral to regional
counsel and the filing of the civil complaint.
This is unchanged
by the fact that Travelers is providing Mac Farms’ defense under
Mac Farms’ policy with Travelers Casualty and Surety Company of
America (“the Travelers Policy”), as it is possible that defense
costs will exhaust the limits of that policy.
Further, Travelers
has reserved its rights to contest its indemnity liability and
has reserved the issue whether claims are interrelated or may be
covered by two successive policies.
Mac Farms therefore argues
that Continental has waived its right to and/or is estopped form
denying coverage to Mac Farms in this matter.
Finally, Mac Farms argues that there is a genuine issue
of material fact with respect to its claim for breach of the
covenant of good faith and fair dealing.
It states that
Ms. Stiefel’s admissions that the reservation of rights letter
was addressed to the wrong person and that she has no documentary
evidence that it was ever mailed or delivered give rise to a fact
issue precluding summary judgment for Continental.
Mac Farms
argues that, viewing the record in the light most favorable to
the non-moving party, and drawing all justifiable inferences in
its favor, the record indicates that Continental accepted Mac
Farms tender without a reservation of rights and did not raise
any coverage questions for two years, but then, “using the ruse
of taking the time to consider and respond to the EEOC’s demand,
13
when, in reality, it was attempting to justify and document its
forthcoming denial of coverage.”
[Mem. in Opp. to Continental
Motion at 36.]
II.
Continental’s Arguments
Continental argues that there is no evidence that would
permit a rational trier of fact to resolve the coverage dispute
in Mac Farms’ favor because there is no potential for coverage
under the Policy: although some of the later EEOC Charges were
filed within the Policy period, all of them arise from
“interrelated wrongful acts” and are deemed to be a single claim
first made on April 18, 2006 (the date the first EEOC Charges
were filed), prior to the beginning of coverage on May 1, 2008.
Continental emphasizes that all of the EEOC Charges allege the
same basic acts occurring from 2004 through 2007, that the EEOC
presented one global conciliation proposal, which allocated the
damage equally among the Charging Parties, and that EEOC v.
Global Horizons is premised upon all of the 41 EEOC Charges.
Thus, Continental contends that all of the EEOC Charges and EEOC
v. Global Horizons are a single claim for purposes of the Policy.
As to Mac Farms’ argument that the “interrelated
wrongful acts” provision is ambiguous, Continental points out
that none of the policies at issue in the four cases cited in Mac
Farms’ Motion contained a definition of “interrelated wrongful
acts” as the instant Policy does.
14
Continental cites a number of
cases holding that definitions of “interrelated wrongful acts”
similar to the definition in the instant Policy were unambiguous
and that EEOC lawsuits relate back to the filing date of the
first EEOC charge.
See, e.g., WFS Financial, Inc. v. Progressive
Casualty Insurance Co., Inc., No. 05-55854, 2007 WL 1113347 (9th
Cir. Apr. 16, 2007); Cracker Barrel Old Country Store, Inc. v.
Cincinnati Insurance Co., No. 11-6306, 2012 WL 3932814, at *7
(6th Cir. Sept. 10, 2012)).]
Continental argues that the facts giving rise to the
EEOC Charges are indisputably similar.
They involve seasonal
laborers who Global Horizons provided to Mac Farms; they allege
harassment, discrimination, intimidation, and retaliation based
on the workers’ Thai national origin; the EEOC made a reasonable
cause determination as to each charge; the EEOC presented a
global conciliation proposal with an equal amount of damages
allocated to each Charging Party; and EEOC v. Global Horizons
encompasses all of the charges and alleges a pattern and practice
of retaliation.
Continental notes that the first of the EEOC Charges
was filed on April 18, 2006, more than two years prior to the
Policy period and during the period of the Travelers’ Policy.
Continental argues that Travelers’ agreement to provide coverage
is evidence that the matters are related and relate back to
April 18, 2006, during the period of the Travelers Policy.
15
As to Mac Farms’ waiver and estoppel arguments,
Continental argues that Mac Farms’ claim that Continental did not
review the EEOC Charges until 2010 is inaccurate.
Continental
points out that the tender letter identified the date of loss as
August 12, 2008.
Its claims representative reviewed the charges,
noted that some were made during the Policy period, and
determined that the EEOC Charges were all identical.
The claims
representative, however, did not realize that some of the charges
were filed prior to the Policy period.
[Continental Mem. in Opp.
at 12-13.]
Continental also emphasizes the 10/23/08 Reservation of
Rights Letter in which it advised Mac Farms that the charges
appeared to arise from the same facts and may be deemed a single
claim under the Policy and included a general reservation of
rights.
Continental therefore denies that it unequivocally or
unconditionally accepted the tender of Mac Farms’ defense.
Continental argues that it is irrelevant that the 10/23/08
Reservation of Rights Letter was addressed to a former Mac Farms
executive because it was issued to Mac Farms’ headquarters at the
address listed on Policy documents.
[Id. at 13-14.]
Continental emphasizes that it allowed Mac Farms to
continue to use its chosen counsel, Goodsill Anderson, even
though Continental had the right to select defense counsel.
Goodsill Anderson’s communications to Continental suggested that
16
the EEOC Charges were meritless and did not require significant
attention from Continental.
Continental later learned of the
Federal Bureau of Investigation’s (“FBI”) investigation of Mac
Farms’ employment of Thai workers.
Continental then reviewed the
EEOC Charges and determined that some were made in 2006, not in
2008 as indicated on the notice of loss.
Continental asserts
that it promptly retained coverage counsel and disclaimed
coverage.
[Id. at 14-15.]
Continental argues that the pendency of the EEOC
conciliation proposal at the time of the disclaimer is irrelevant
because it advised Mac Farms’ counsel on August 3, 2010 that it
was reviewing coverage.
conciliation proposal.
prompted the denial.
This was prior to the issuance of the
Thus, the proposal could not have
Further, the Policy has a $1 million limit,
including defense costs, for employment practices liability, and
the resolution would have required Mac Farms to contribute its
own funds.
Continental therefore argues that it did not deprive
Mac Farms of any opportunity to resolve the case early because it
could pursue settlement on its own or through its Travelers
Policy, which Mac Farms ultimately did.
Travelers has agreed to
fully defend Mac Farms for EEOC v. Global Horizons, and has
reimbursed Mac Farms for its out-of-pocket expenses in connection
with the defense of the EEOC Charges.
Mac Farms also has the
right to seek indemnity for coverage for EEOC v. Global Horizons
17
from Travelers.
Continental argues that, because Mac Farms has
full coverage from Travelers, Mac Farms has not been prejudiced
by Continental’s withdrawal of coverage. [Id. at 15-17.]
Finally, Continental argues that waiver and estoppel
cannot expand the scope of bargained for coverage under an
insurance policy.
Further, there are no technical or forfeiture
grounds that Continental may waive or be estopped from asserting.
Continental acted in good faith and did not prejudice Mac Farms.
Estoppel therefore does not preclude Continental from asserting
valid defenses to coverage.
[Id. at 17-18 (citing Enoka v. AIG
Hawaii Ins. Co., Inc., 128 P.3d 850, 867, 869 (Haw. 2006)).]
Finally, Continental notes that Mac Farms did not move
for summary judgment on its bad faith claim, and that the Court
should rule that it did not act in bad faith as a matter of law.
It argues that it did not act unreasonably in disclaiming
coverage because case law supports its positions on the
application of the “interrelated wrongful acts” and “prior
notice” exclusion.
[Continental Reply at 15-17.]
DISCUSSION
I.
Summary Judgment Standard
Pursuant to Federal Rule of Civil Procedure 56(a), a
party is entitled to summary judgment “if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”
18
Summary judgment must be granted against a
party that fails to demonstrate facts to establish
what will be an essential element at trial. See
Celotex [Corp. v. Catrett], 477 U.S. [317,] 323
[(1986)]. A moving party has both the initial
burden of production and the ultimate burden of
persuasion on a motion for summary judgment.
Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210
F.3d 1099, 1102 (9th Cir. 2000). The burden
initially falls on the moving party to identify
for the court “those portions of the materials on
file that it believes demonstrate the absence of
any genuine issue of material fact.” T.W. Elec.
Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809
F.2d 626, 630 (9th Cir. 1987) (citing Celotex
Corp., 477 U.S. at 323). “A fact is material if it
could affect the outcome of the suit under the
governing substantive law.” Miller [v. Glenn
Miller Prods., Inc.], 454 F.3d [975,] 987 [(9th
Cir. 2006)].
When the moving party fails to carry its
initial burden of production, “the nonmoving party
has no obligation to produce anything.” In such a
case, the nonmoving party may defeat the motion
for summary judgment without producing anything.
Nissan Fire, 210 F.3d at 1102-03. On the other
hand, when the moving party meets its initial
burden on a summary judgment motion, the “burden
then shifts to the nonmoving party to establish,
beyond the pleadings, that there is a genuine
issue for trial.” Miller, 454 F.3d at 987. This
means that the nonmoving party “must do more than
simply show that there is some metaphysical doubt
as to the material facts.” Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586 (1986) (footnote omitted). The nonmoving
party may not rely on the mere allegations in the
pleadings and instead “must set forth specific
facts showing that there is a genuine issue for
trial.” Porter v. Cal. Dep’t of Corr., 419 F.3d
885, 891 (9th Cir. 2005) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 256 (1986)).
“A genuine dispute arises if the evidence is such
that a reasonable jury could return a verdict for
the nonmoving party.” California v. Campbell, 319
F.3d 1161, 1166 (9th Cir. 2003); Addisu v. Fred
Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000)
19
(“There must be enough doubt for a ‘reasonable
trier of fact’ to find for plaintiffs in order to
defeat the summary judgment motion.”).
On a summary judgment motion, “the nonmoving
party’s evidence is to be believed, and all
justifiable inferences are to be drawn in that
party’s favor.” Miller, 454 F.3d at 988
(quotations and brackets omitted).
Rodriguez v. Gen. Dynamics Armament & Technical Prods., Inc., 696
F. Supp. 2d 1163, 1176 (D. Hawai`i 2010) (some citations
omitted).
II.
Applicable Law Regarding Insurance Contract Interpretation
Federal jurisdiction in this case is based on
diversity.
This district court has recognized that:
Federal courts sitting in diversity apply state
substantive law and federal procedural law. See Mason &
Dixon Intermodal, Inc. v. Lapmaster Int’l LLC, 632 F.3d
1056, 1060 (9th Cir. 2011) (“When a district court sits
in diversity, or hears state law claims based on
supplemental jurisdiction, the court applies state
substantive law to the state law claims.”); Zamani v.
Carnes, 491 F.3d 990, 995 (9th Cir. 2007) (“Federal
courts sitting in diversity jurisdiction apply state
substantive law and federal procedural law.”
(quotations omitted)). When interpreting state law, a
federal court is bound by the decisions of a state’s
highest court. Trishan Air, Inc. v. Fed. Ins. Co., 635
F.3d 422, 427 (9th Cir. 2011). In the absence of a
governing state decision, a federal court attempts to
predict how the highest state court would decide the
issue, using intermediate appellate court decisions,
decisions from other jurisdictions, statutes,
treatises, and restatements as guidance. Id.; see also
Burlington Ins. Co. v. Oceanic Design & Constr., Inc.,
383 F.3d 940, 944 (9th Cir. 2004) (“To the extent this
case raises issues of first impression, our court,
sitting in diversity, must use its best judgment to
predict how the Hawaii Supreme Court would decide the
issue.” (quotation and brackets omitted)).
20
Estate of Rogers v. Am. Reliable Ins. Co., Civil No. 10–00482
SOM/RLP, 2011 WL 2693355, at *3 (D. Hawai`i July 8, 2011).
A.
General Principles Under Hawai`i Law
The Hawai`i Supreme Court has set forth the following
principles applicable in the interpretation of insurance
contracts:
[I]nsurers have the same rights as
individuals to limit their liability and to impose
whatever conditions they please on their
obligation, provided they are not in contravention
of statutory inhibitions or public policy. As
such, insurance policies are subject to the
general rules of contract construction; the terms
of the policy should be interpreted according to
their plain, ordinary, and accepted sense in
common speech unless it appears from the policy
that a different meaning is intended. Moreover,
every insurance contract shall be construed
according to the entirety of its terms and
conditions as set forth in the policy.
Nevertheless, adherence to the plain language
and literal meaning of insurance contract
provisions is not without limitation. We have
acknowledged that because insurance policies are
contracts of adhesion and are premised on standard
forms prepared by the insurer’s attorneys, we have
long subscribed to the principle that they must be
construed liberally in favor of the insured and
any ambiguities must be resolved against the
insurer. Put another way, the rule is that
policies are to be construed in accord with the
reasonable expectations of a layperson.
Guajardo v. AIG Hawai`i Ins. Co., Inc., 118 Hawai`i 196, 201-02,
187 P.3d 580, 585-86 (2008) (alteration in Guajardo) (quoting
Dairy Rd. Partners v. Island Ins. Co., 92 Hawai`i 398, 411–12,
992 P.2d 93, 106–07 (2000)).
The Hawai`i Supreme Court has also
stated: “[t]he objectively reasonable expectations of
21
[policyholders] and intended beneficiaries regarding the terms of
insurance contracts will be honored even though painstaking study
of the policy provisions would have negated those expectations.
These ‘reasonable expectations’ are derived from the insurance
policy itself . . . .”
Del Monte Fresh Produce (Hawaii), Inc. v.
Fireman’s Fund Ins. Co., 117 Hawai`i 357, 368, 183 P.3d 734, 745
(2007) (citations and some quotation marks omitted) (some
alterations in original).
Under the principles of general contract
interpretation, “[a] contract is ambiguous when the terms of the
contract are reasonably susceptible to more than one meaning.”
Airgo, Inc. v. Horizon Cargo Transport Inc., 66 Haw. 590, 594,
670 P.2d 1277, 1280 (1983).
It is well settled that courts should not draw
inferences from a contract regarding the parties’
intent when the contract is definite and
unambiguous. In fact, contractual terms should be
interpreted according to their plain, ordinary
meaning and accepted use in common speech. The
court should look no further than the four corners
of the document to determine whether an ambiguity
exists. Consequently, the parties’ disagreement
as to the meaning of a contract or its terms does
not render clear language ambiguous.
State Farm Fire & Cas. Co. v. Pac. Rent–All, Inc., 90 Hawai`i
315, 324, 978 P.2d 753, 762 (1999) (citations omitted).
III. Duty to Defend & Duty to Indemnify
In its motion, Mac Farms argues that Continental has a
duty to defend it under the Policy.
22
This district court has
summarized the following relevant aspects of Hawai`i law
regarding the duty to defend and the duty to indemnify.
The burden is on the insured to establish
coverage under an insurance policy. See Sentinel
Ins. Co. v. First Ins. Co. of Haw., 76 Haw. 277,
291 n.13, 875 P.2d 894, 909 n.13 (1994) (as
amended on grant of reconsideration); Crawley v.
State Farm Mut. Auto. Ins. Co., 90 Haw. 478, 483,
979 P.2d 74, 79 (App. 1999). The insurer has the
burden of establishing the applicability of an
exclusion. See Sentinel, 76 Haw. at 297, 875 P.2d
at 914.
The duty to indemnify is owed “for any loss
or injury which comes within the coverage
provisions of the policy, provided it is not
removed from coverage by a policy exclusion.”
Dairy Road Partners v. Island Ins., 92 Haw. 398,
413, 922 P.2d 93, 108 (2000). The obligation to
defend an insured is broader than the duty to
indemnify. The duty to defend arises when there
is any potential or possibility for coverage.
Sentinel, 76 Haw. at 287, 875 P.2d at 904; accord
Haole v. State, 111 Haw. 144, 151, 140 P.3d 377,
384 (2006) (“if there is no potential for
indemnification, then no duty to defend will
arise”). However, when the pleadings fail to
allege any basis for recovery under an insurance
policy, the insurer has no duty to defend.
Pancakes of Hawaii, Inc. v. Pomare Props. Corp.,
85 Haw. 286, 291, 994 P.2d 83, 88 (Haw. Ct. App.
1997)). In other words, for [the insurer] to have
no duty to defend, it must prove that it would be
impossible for a claim in the underlying lawsuit
to be covered by the policy. See Tri–S Corp. v.
W. World Ins. Co., 110 Haw. 473, 488, 135 P.3d 82,
97 (2006).
Estate of Rogers, 2011 WL 2693355, at *4.
The Hawai`i Supreme
Court has emphasized that the duty to defend applies even if the
possibility of coverage is “remote”.
Tri-S Corp. v. Western
World Ins. Co., 110 Hawai`i 473, 488, 135 P.3d 82, 97 (2006).
Further, “[a]ll doubts as to whether a duty to defend exists are
23
resolved against the insurer and in favor of the insured.”
Id.
“[T]he duties to defend and indemnify arise under the
terms of the insurance policy, and it is through an
interpretation of the terms of the policy that such duties are
deemed to be owed.”
Del Monte Fresh Produce, 117 Hawai`i at
369-70, 183 P.3d at 746-47 (citation omitted).
Continental argues that, because of the Interrelated
Wrongful Acts Exclusion in the Policy, it has no duty to defend
or indemnify.
Specifically, Continental asserts that a threshold
requirement for coverage is that the claim was made during the
Policy period of May 1, 2008 to August 11, 2008; however, the
first EEOC Charges were filed on April 18, 2006, and, while some
of the later EEOC Charges were filed within the Policy period,
all of them arise from “interrelated wrongful acts” and are thus
deemed to be a single claim first made on April 18, 2006, outside
the Policy period.
As noted previously, the Policy defines “Interrelated
Wrongful Acts” as “any Wrongful Acts which are logically or
causally connected by reason of any common fact, circumstance,
situation, transaction or event.”
omitted).]
[Policy at CCC 00011 (emphases
A “Wrongful Act” is defined under the Policy as “any
actual or alleged error, misstatement, misleading statement, act,
omission, neglect or breach of duty committed or attempted by the
Insured Persons in their capacity as such or by Named Company or
24
any Subsidiary.”
[Id. at CCC 00024 (emphases omitted).]
Mac Farms argues that the Policy’s language is
ambiguous, and cites a number of cases to support this
proposition.
These cases, however, are distinguishable from the
instant case in that they dealt with policies that did not
expressly define the term “interrelated wrongful acts,” while the
Policy here contains just such a definition.
See, e.g., American
Home Assur. Co. v. Allen, 814 N.E.2d 662 (Ind. App. 2004)
(finding ambiguous an undefined “interrelated wrongful acts”
term).
Although no Hawai`i court has yet addressed the scope of
an “interrelated wrongful acts” provision, a significant number
of courts have concluded that nearly identical provisions are
clear and unambiguous.
See, e.g., WFS Financial, Inc. v.
Progressive Casualty Insurance Co., Inc., No. 05-55854, 2007 WL
1113347 (9th Cir. Apr. 16, 2007); Berry & Murphy, P.C. v.
Carolina Cas. Ins. Co., 586 F.3d 803, 810-811 (10th Cir. 2009);
Highwoods Props., Inc. v. Exec. Risk Indem. Inc., 407 F.3d 917,
925 (8th Cir. 2005); Bryan Bros Inc. v. Continental Cas. Co., 704
F. Supp. 2d 537 (E.D. Va. 2010), aff’d, 660 F.3d 827 (4th Cir.
2011)).
The instant Policy has a clear, broad definition of the
term “interrelated wrongful acts.”
This Court finds that the
provision is not ambiguous, and will therefore interpret it in
accordance with its plain meaning.
25
Mac Farms argues that the EEOC Charges cannot be
considered “interrelated wrongful acts” under the Policy because
they involve 41 different employees who worked at Mac Farms
during different time periods.
Numerous courts have held,
however, that interrelated wrongful act claims may be triggered
regardless of the number of claimants or the number of
transactions at issue.
See Berry & Murphy, 586 F.3d at 811-14
(10th Cir. 2009); Continental Cas. Co. v. Wendt, 205 F.3d 1258
(11th Cir. 2000); Gregory v. The Home Ins. Co., 876 F.2d 602 (7th
Cir. 1989); Brecek and Young Advisors, Inc. v. Syndicate 2003,
Lloyd’s of London, et al., No. 4:11CV3003, 2012 WL 5569242 (D.
Neb. Dec. 24, 2012).
Further, as the court in Brecek stated, courts view
“interrelated wrongful acts” provisions differently depending on
whether the term is further defined in the relevant policy: “When
the term is not defined, it is construed narrowly and more
significant overlap is necessary before claims will be deemed
interrelated.”
2012 WL 5569242 at *12 (citations omitted).
When
the term is defined broadly, as it is in the instant Policy,
“courts have been much more willing to find acts to be
‘interrelated.’”
Id. (citations and quotation marks omitted).
Mac Farms asserts that the allegations in the EEOC
Charges and in the EEOC’s complaint in EEOC v. Global Horizons
are vague, prohibiting any finding that all of the EEOC Charges
26
are logically or causally connected.
Upon close examination, it
is clear that all of the EEOC Charges allege the same basic acts
occurred from 2004 through 2007; involve seasonal laborers
provided to Mac Farms by Global Horizons; and allege harassment,
discrimination, intimidation, and retaliation based on the
workers’ Thai national origin.
The EEOC made a reasonable cause
determination as to each of these charges, presented a global
conciliation proposal with an equal amount of damages allocated
to each Charging Party, and filed the ensuing litigation, EEOC v.
Global Horizons, which encompasses all of these charges, and
alleges a pattern and practice of retaliation as to all charges.
In light of these facts, and the fact that the Policy
broadly defines the term “interrelated wrongful acts,” the Court
finds that all of the EEOC charges and the acts underlying the
EEOC Complaint constitute “interrelated wrongful acts” as defined
by the Policy.
The first EEOC Charges were filed on April 18,
2006, which is prior to the beginning of coverage on May 1, 2008.
Although some of the later EEOC Charges were filed within the
Policy period, all of them arise from “interrelated wrongful
acts” and are thus deemed to be a single claim first made on
April 18, 2006.
As such, this Court finds that Continental does
not have a duty to defend under the Policy.
IV.
Estoppel
Mac Farms argues that Continental is estopped from
27
denying its duty to defend under the Policy.
In Sentinel
Insurance Co., Ltd. v. First Insurance Co. of Hawai‘i, Ltd., 76
Hawai‘i 277, 875 P.2d 894 (1994), the Hawai‘i Supreme Court
discussed the application of estoppel to an insurer’s decision
whether or not to defend and the effect of a change of position:
The proffered bases for applying such a rule
have included: (1) the insurer’s failure to
preserve the coverage defense by defending under a
reservation of rights or seeking declaratory
relief on its duty to defend . . . ; (2) the
inequity of allowing the insurer to benefit from
policy provisions and exclusions after the insurer
has shirked its responsibilities thereunder. . . ;
or (3) the similar inequity of allowing the
insurer to second-guess the defense undertaken as
a result of its breach.
. . . .
Further, we fail to see how there can be an
estoppel in a case where the insurer refuses to
defend by taking the position that there is no
coverage under the policy and then maintains that
same position in defending the insured’s suit for
indemnification. In that situation, “no estoppel
is involved in any traditional sense because, in
refusing to defend a claim, an insurer makes no
misrepresentation on which the insured relies to
its detriment.” Blanket application of coverage
by waiver or estoppel, on the contrary, would
result in the insured receiving a windfall. The
insured would obtain a benefit it did not bargain
for where the facts developed in discovery or at
trial after the duty to defend has been breached
establishes that the insured was not entitled to
coverage. As one scholar of insurance has noted:
Where there is no coverage, the greatest
injury that the insured could have suffered
by a failure to defend is the cost of defense
- the judgment would have been his
responsibility regardless. [Courts holding
to the contrary] apparently rel[y] on
28
estoppel and . . . breach of contract. Since
the insured was in no way misled there could
be no estoppel. A breach of contract of
course waives a forfeiture but it does not
nor should it create a new contract.
[7C J.] Appleman, [Insurance Law and Practice,] §
4689, at 215 n.13 [(1979)].
. . . .
Certainly, in individual cases, the
application of waiver or estoppel will be
appropriate - for example, where the insured has
been prejudiced in some way by the insurer’s
failure to provide a defense. . . , or where the
insurer has taken inconsistent positions with
regard to defense and coverage. See, e.g.,
Tomerlin v. Canadian Indem. Co., 61 Cal.2d 638,
394 P.2d 571, 39 Cal. Rptr. 731 (1964) (insured
relinquished personal attorney’s representation
when agent for insurer represented that insurer
was liable for coverage and would abandon
reservation of rights).
76 Hawai‘i at 295-96, 875 P.2d at 912-13 (some citations
omitted).
Absent manifest injustice, “the party invoking
equitable estoppel must show that he or she has detrimentally
relied on the representation or conduct of the person sought to
be estopped, and that such reliance was reasonable.”
AIG Hawai‘i
Ins. Co. v. Smith, 78 Hawai‘i 174, 179, 891 P.2d 261, 266 (1995)
(emphasis in original) (quotation marks omitted).
Mac Farms argues that Continental is estopped from
denying its duty to defend under the Policy because Continental
provided Mac Farms with a defense for two years before
withdrawing coverage without meaningful warning.
29
Mac Farms
argues that the 10/23/08 Reservation of Rights Letter was
ineffective, as it was never received.
The letter was apparently
sent to Mac Farms’ address as set forth on Policy documents, but
was never received because the insured had a change in address,
of which Continental was not aware.
[Continental Mem. in Opp. at
13-14 (citing 10/23/08 Reservation of Rights Letter; Policy at
CCC 00006; Stiefel Decl., Exh. K).]
Based on the record, the
Court finds no evidence that Continental provided a reservation
of rights letter that was received by Mac Farms.
To succeed on its estoppel claim, however, Mac Farms
must demonstrate that it relied on Continental to its detriment,
and that such reliance was reasonable.
Hawai‘i at 179.
AIG Hawai‘i Ins. Co., 78
It has failed to do so.
The Court finds no
evidence that Mac Farms suffered any detriment or was prejudiced
because of Continental’s withdrawal of its defense.
Even though
Continental had a right to select defense counsel, Mac Farms was
allowed to continue with its choice of counsel, Goodsill
Anderson.
Travelers has agreed to fully defend Mac Farms under
its policy.
Mac Farms has thus failed to demonstrate that
Continental’s withdrawal prejudiced it or deprived it of any
opportunity to pursue a settlement with the EEOC.
Further, under
Hawai`i law, waiver and estoppel may not be used to broaden the
coverage of an insurance policy beyond what the insured bargained
for.
See Enoka v. AIG Hawaii Ins. Co., Inc., 128 P.3d 850, 867,
30
869 (Haw. 2006).
As such, this Court finds that Continental is
not estopped from denying its duty to defend or indemnify Mac
Farms under the Policy.
V.
Breach of the Covenant of Good Faith and Fair Dealing
Finally, Mac Farms argues that there is a genuine issue
of material fact with respect to its claim for breach of the
covenant of good faith and fair dealing.
This Court has characterized similar claims as attempts
to allege claims for the tort of bad faith.
See, e.g., Phillips
v. Bank of Am., Civil No. 10-0051 JMS-KSC, 2011 WL 240813, at *5
(D. Hawai`i Jan. 21, 2011) (citing Best Place v. Penn Am. Ins.
Co., 82 Haw. 120, 128, 920 P.2d 334, 342 (1996) (adopting tort of
bad faith for breach of implied covenant of good faith and fair
dealing in an insurance contract)).
As the Hawai‘i Supreme Court stated in Miller v.
Hartford Life Insurance Co., 126 Hawai‘i 165, 178, 268 P.3d 418,
431 (2011):
The burden of proof for bad faith liability is not
insubstantial. As we stated in Best Place [v. Penn
America Insurance Co., 82 Hawai‘i 120, 920 P.2d 334
(1996)], an insurer’s conduct that is based on an
interpretation of the insurance contract that is
reasonable does not constitute bad faith; moreover, an
erroneous decision not to pay a claim for benefits due
under a policy does not by itself prove liability.
Rather, the decision not to pay a claim must be in “bad
faith” in order to prove liability.
See also Enoka v. AIG Hawaii Ins. Co., 109 Hawai‘i 537, 552, 128
P.3d 850, 865 (2006) (“where an insurer denies the payment of
31
no-fault benefits based on ‘an open question of law,’ there is
‘obviously no bad faith on the part of the insurer in litigating
that issue’” (citation omitted)).
Here, Mac Farms has failed to demonstrate that
Continental acted in bad faith.
Notwithstanding the lack of
evidence that a reservation of rights letter was ever sent by
Continental and received by Mac Farms, Continental did not act
unreasonably or in bad faith, as it denied coverage based upon
the reasonable belief that the Policy’s Interrelated Wrongful
Acts Exclusion precluded coverage.
CONCLUSION
On the basis of the foregoing, Mac Farms’ Motion for
Partial Summary Judgment as to Duty to Defend, filed on May 30,
2012, is HEREBY DENIED, and Continental’s Motion for Summary
Judgment, filed on July 30, 2012, is HEREBY GRANTED.
The Clerk’s
Office is directed to close this case.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, January 14, 2013.
/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
MF NUT CO., LLC, fka MAC FARMS OF HAWAII, LLC V. CONTINENTAL
CASUALTY COMPANY; CIVIL NO. 11-00004 LEK-BMK; ORDER DENYING
PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT, GRANTING
DEFENDANT’S MOTION FOR SUMMARY JUDGMENT [DKT. NOS. 52, 64, AND
VACATING TRIAL DATE
32
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